Fed’s $1.5 Trillion Stimulus Fails to Slow Plunge: Financial Collapse 2020 Day 5

Yesterday’s Fed announcement to inject $1.5 trillion into the financial system did little to slow the free-falling Dow Jones Industrial Average and the S&P 500 yesterday. That signals in no uncertain terms that the stimulus or Quantitative Easing, and Zero Interest Rate Policy – the twin saviors of the market in 2008 – are not going to be available weapons against the present meltdown.

Don’t for a minute believe that the Fed won’t try ever more outlandish Shock and Awe tactics: Watch for the term “quadrillion” to enter the dialogue around stimulus in the coming weeks.

But that too, will likely do little to ease the intensity of the fear-driven sell everything mania that has now gripped the market. The world has entered a crisis of utterly biblical proportions that could herald the end of an era.

If all central bank measures fail to stem the market’s steepening plunge, then a complete revision of the financial system may be rquired.

But first, direct intervention in equity markets will likely become the next feature of government intervention in markets: Look for announcements of major capital purchases of stock directly in the markets by central banks, which could theoretically cause a pause in the drop. But it would have to coincide with a ban on short sellers, because they will come out of the woodwork to overwhelm any central bank buying, knowing that there will be a bid to cover any short sale.

Instead of being the “lender of last resort” as the Fed wants the corporate world to think of it, it will become the only lender, and the patsy holding the door for all the capital leaving the market at the same time.

No one can doubt that, while the coronavirus pandemic is indeed the catalyst for the panic selling that sparked the market rout, it is the stupendous volumes of free money the Fed has lavished on corporate America that has led to this unprecedented volume of selling.

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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